March 17, 2021/United Capital Research
On 6th March 2021, Joe Biden signed a $1.9tn COVID-19 relief bill (the 3rd major stimulus package passed in the U.S. since the start of the pandemic). The bill aims to act as a catalyst to spur U.S economic recovery to pre-pandemic levels by 2022. Due to the U.S economic influence globally (it accounts for 20% of global demand,) the stimulus program could also spur global economic growth.
First, the $1.9trn stimulus is expected to bolster consumption spending in the US, with a multiplier effect on global demand, potentially supporting a faster improvement in manufacturing activities in China as well as demand for commodities in many African countries. As such, this would boost energy demand, driving oil prices higher in the short term amid OPEC cap agreement.
Notably, oil prices rebounded, climbing above $70/b for the first time since the advent of COVID-19 after the U.S. House of Representatives passed the most recent stimulus package. Oil contributes c. 8.0% of Nigerian GDP and c. 85.0% of export revenue. Therefore, sustained improvement in the oil market would support Nigeria’s economic recovery.
However, on the downside, investor’s expectation of recovery in the U.S. economy has put upward pressure on bond yields. U.S. 10-year treasury yields rose to 1.6%, its highest level since the pandemic. Rising bond yields may trigger investors to flee from emerging markets, as seen in the selloffs in African Eurobond markets.
Lastly, investor demand for the Fed to hike bond yields in the medium term could potentially strengthen the greenback, causing FPI outflows from E.M.s and making U.S. exports more expensive in the medium term.
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